FACTS:

Reyes  was  engaged  in  the  RTW  business  and  held  transactions  with different  department  stores.  She  was  about  to  collect  payments  from  the department stores when she was informed that the payments had already been made, through crossed checks issued in her business’ name and the same  were  deposited  with  the  bank.    The  bank  consequently  allowed  its transfer to Sayson who later encashed the checks.  This prompted Reyes to sue the bank and its manager for the return of the money.  The trial and appellate court ruled in her favor.   
 

HELD:

There  is  no  doubt  that  the  checks  were  crossed  checks  and  for  payee’s account  only.    Reyes  was  able  to  show  that  she  has  never  authorized Sayson to deposit the checks nor to encash the same; that the bank had allowed  all  checks  to  be  deposited,  cleared  and  paid  to  one  Sayson  in
violation of the instructions in the said crossed checks that the same were for  payee’s  account  only;  and  that  Reyes  maintained  a  savings  account with the bank which never cleared the said checks.
 
Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on the top left portion of the checks.  The crossing is  special  where  the  name  of  a  bank  or  a  business  institution  is  written between  the  two  parallel  lines,  which  means  that  the  drawee  should  pay
only with the intervention of the company.  The crossing is general where the words written in between are “And Co.” and “for payee’s account only”, as in the case at bar.  This means that the drawee bank should not encash the check but merely accept it for deposit.  
 
The effects of crossing a check are as follows:
1.    That  the  check  may  not  be  encashed  but  only  deposited  in  the bank
2.    That the check may be negotiated only once—to one who has an account with a bank
3.    That  the  act  of  crossing  the  check  serves  as  a  warning  to  the holder  that  the  check  has  been  issued  for  a  definite  purpose  so that he must inquire if he has received the check pursuant to the
purpose
 
The subject checks were accepted for deposit by the bank for the account of Sayson although they were crossed checks and the payee wasn't Sayson but  Reyes.    The  bank  stamped  thereon  its  guarantee  that  all  prior endorsements   and/or   lack   of   endorsements   guaranteed.      By   such deliberate and positive act, the bank had for all legal intents and purposes treated the said checks as negotiable instruments and accordingly assumed the warranty of the endorser.  
 
When the bank paid the checks so indorsed notwithstanding that title has not passed to the endorser, it did so at its peril and became liable to the payee for the value of the checks.